Institute of Bankers of Sri Lanka

Diploma in Compliance - Assignment No. 1

KYC means Know Your Customer and sometimes Know Your Client. KYC check is the
mandatory process of identifying and verifying the client's identity when opening an
account and periodically over time. In other words, Financial Institutions (FIs) must make
sure that their clients are genuinely who they claim to be.

KYC standards are designed to protect financial institutions against fraud, corruption,
money laundering and terrorist financing. KYC involves several steps to: establish customer
identity; understand the nature of customers' activities; qualify that the source of funds is
legitimate and assessment of “risk & return” from the client relationship.

Customer Due Diligence  (CDD) is the process where pertinent information of a customer's

profile is collected and evaluated for potential money laundering or terrorist financing risks
and evaluation of “Risk Vs Return”. This methodology is also known as the risk-based
approach, which allows a FI to prioritise resources accordingly to areas that require more
attention.

CDD aims at collecting data about customers' identity and contact information as well as
measuring their risk. Enhanced Due Diligence (EDD) is used for high-risk customers, aka
those who are more likely to implement activities related to money laundering and
terrorism financing due to the nature of their business or transactions.

In the world of Financial Crime Compliance (FCC), CDD & EDD are important and complex
field. It aims to uncover any potential risk to the financial institution of doing business with
a specific organisation or individual by analysing information from a variety of sources.

Today, almost every online business needs KYC, CDD & EDD compliance, from forex
exchanges, international trade to gambling operators or FIs.

However, performing KYC, CDD & EDD checks for every user is expensive, it adds friction to
the customer relationship - and most importantly, it isn't always enough to fight fraud.

The objective of KYC, CDD & EDD guidelines is to prevent banks from being used, by
criminal elements for money laundering and terrorist financing activities. It also enables FIs
to understand customers and their financial dealings to serve them better and manage risks
prudently.

Many FIs deploy fraud prevention system to augment AML solutions, filter out bad users
pre-KYC check, trigger exceptions, reduce transaction fraud, eradicate defaulting customers,
and grow your business safely, with complete peace of mind.
Task description
Critically analyse regulatory requirements of KYC, CDD & EDD and the impact on the
performance of a FI. Conclude the analysis with recommendations for improvements for the
future. Ideally with synergy between regulators and FIs avoiding.

1. Topic: "Regulatory requirements of KYC, CDD & EDD and the need for compliance" 
2. Word count : 3000 + or - 10%
3. Referencing: Harvard style
4. Submission : Wednesday, 30 June 2021 through email to "menaka@ibsl.lk" with copy to
"premasiriratnayake@yahoo.com"
5. Writing       : Word document in font size 12. 
6. Suggested paragraphs : Acknowledgment, Executive summery, Content page,
Introduction, Regulations & Parliament Acts, Compliance policy, Recent penalties imposed
by FIU, Market best practices, Mindfulness, Facilitating customer transactions, New
developments using E-KYC and Block-chain, Contribution to the economy, Conclusion, List
of references. 
7. Students should NOT copy from each other and should be their own work.
8. Reference to books, news papers, journals, websites, regulations and any other
material should be with due recognition to the author, publication, date/year of
publication, following Harvard style referencing.
9. Referencing
In the main body of your submission you must give credit to authors on whose research
your work is based. Append to your submission a reference list that indicates the books,
articles, etc. that you have read or quoted in order to complete this assignment (e.g. for
books; surname of author and initials, year of publication, title of book, edition, publisher:
place of publication).

10. Discloser
Please include the following statement on the “title page” of the assignment, followed by
your name and NIC No:
I declare that this assignment is all my own work and that I have acknowledged all materials
used from the published or unpublished works of other people. All references have been
duly cited.